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Man City stake sale breaks valuation record for a sports group

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Via Financial Times

Manchester City’s owner has agreed to sell a $500m stake to Silver Lake in a deal that breaks a record in sports valuations and fuels the football group’s international expansion.

The US private equity firm is buying more than 10 per cent of City Football Group at a valuation of $4.8bn, injecting new capital into the Abu Dhabi-controlled organisation that owns Manchester City and affiliated teams in the US and China, according to several people with knowledge of the deal.

California-based Silver Lake made its name investing in technology companies such as Alibaba, Dell and Skype but has pivoted in recent years to entertainment, with a portfolio that includes the Ultimate Fighting Championship and Hollywood talent agency Endeavor.

CFG chairman Khaldoon Al Mubarak and Silver Lake managing partner Egon Durban signed the deal on Saturday, according to people briefed on the transaction. Hours later, the pair were spotted beside each other as City defeated Chelsea to boost the team’s hopes of retaining England’s Premier League title.

CFG and Silver Lake declined to comment, but an official announcement is expected as early as Wednesday morning.

Silver Lake had approached other leading English and European clubs, including Chelsea, according to people with knowledge of its strategy. The firm was attracted by the multibillion-dollar prices paid for football media rights by broadcasters and internet groups.

Silver Lake intends to hold its stake for about a decade but could seek to cash out through an initial public offering or sell to another private investor, according to a person close to the investment group. Regardless of Silver Lake’s eventual exit strategy, Abu Dhabi intends to retain its majority ownership of CFG.

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Sheikh Mansour bin Zayed Al Nahyan, a billionaire businessman and member of the Abu Dhabi royal family, bought Manchester City in 2008. He has spent hundreds of millions of pounds on world class footballers in an effort to turn the club into a global force capable of winning the sport’s biggest prizes.

CFG, chaired by Mr Al Mubarak, one of Abu Dhabi’s most powerful officials, has gone on to buy into clubs worldwide.

The company acquired Chinese third-tier side Sichuan Jiuniu, adding to investments in the US, Japan, Australia, Spain and Uruguay. CFG is also in advanced talks for a takeover of Indian Super League side Mumbai City FC, according to people familiar with the negotiations.

Khaldoon Al Mubarak, CFG and Man City chairman, alongside Egon Durban, Silver Lake managing partner, at the Manchester City vs Chelsea match
Khaldoon Al Mubarak of City Football Group and Man City chairman alongside Egon Durban, Silver Lake managing partner, at the Manchester City vs Chelsea match

The $500m cash injection will help fund CFG’s aggressive expansion plans, including the acquisition of more football clubs globally, as well as the planned construction of a stadium in New York, according to people with knowledge of the group’s plans.

Activists have criticised Manchester City’s owners, believing the club is a means of projecting Abu Dhabi’s soft power and damping criticism of the United Arab Emirates’ human rights record.

CFG has argued its model has a clear profit motive and its executives believe the Silver Lake deal is vindication of a business strategy that will deliver significant returns to shareholders.

But making money through CFG, with City still the only profitable club within the global network, will take many years.

In 2015, China Media Capital led a consortium that paid $400m for a 13 per cent stake in CFG, valuing the group at more than $3bn. The new deal will leave Sheikh Mansour as majority shareholder at 77 per cent, China Media Capital at about 12 per cent, and Silver Lake at just over 10 per cent.

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The Silver Lake deal comes even as Manchester City is threatened by an investigation by Uefa, European football’s governing body into alleged breaches of “financial fair play” rules designed to stop clubs overspending in the pursuit of silverware.

In May, Uefa investigators looking into claims that the English club had masked funding from its Middle Eastern owner, recommended the team be banned from the Champions League, where participating clubs share in more than €2bn in prize money, for at least one season. A final ruling by Uefa is expected in December.

Following due diligence, Silver Lake executives concluded that even with the risk of lost revenues from such a ban, the business was still worth $4.8bn, according to people close to the transaction.

The valuation puts CFG above its sporting peers. Joe Tsai, co-founder of Chinese ecommerce group Alibaba, bought a controlling share in the Brooklyn Nets basketball team this year at a$2.35bn valuation, the highest for a US sports team. New York-listed Manchester United — City’s local footballing rival — has a market capitalisation of $2.8bn.

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